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Iran’s human capital conundrum

Is your executive team ready for the challenges of doing business in Iran?

17 Jun 2016

Global business leaders and economic commentators are actively considering the opportunities and risks associated with reigniting business ties with Iran. Some regard Iran’ s emergence from crippling economic sanctions as a timely ‘ business bonanza’ not to be ignored – others see it as dangerous hype, full of complex issues.

Iran has continued to emerge as a country with a promising medium-term economic outlook. It has the second largest economy in the Middle East and North Africa (MENA) region, behind Saudi Arabia, with an estimated nominal GDP of $397 billion in 2015, and a single-digit rate of inflation. Iran also has the second largest population in the region, behind Egypt, with just fewer than 80 million people. Iran recognises that Foreign Direct Investment (FDI) is needed across all sectors to help position the country as a low-cost, quality and technology focused manufacturing hub for MENA, thus reducing the over-reliance on state-owned-enterprises.

Since Implementation Day – the moment when the economic benefits of the nuclear agreement with the West took effect – we have interviewed a range of industry leaders with strong current links with Iran, to gain insight into the potential human capital-related ‘snakes and ladders’ when shaping up a leadership team for market entry and growth in Iran.

Hamid Mojtahedi is Head of the ‘ Iran Group’ and Senior Lawyer for Al Tamimi & Company, which has been providing legal services to clients in the Middle East for more than 25 years. He says: “The Iranian population is highly-educated (60 per cent are aged 40 or below) with a specific emphasis placed on science, maths and engineering. But unemployment remains high, rising further in the last two years. Today unemployment stands at around 12 per cent , with around twice as many women unemployed compared to their male counterparts.”

He also draws attention to the ‘ brain drain’ of more than 150,000 highly-educated Iranians who moved overseas every year in the 1990s. Today more than 500,000 Iranians are studying abroad. Hamid adds: “The years of draconian sanctions and absence of FDI have led to a real lack of international business practices and behaviours amongst large swathes of the working population. This in turn has led to a certain commercial complacency and potential stubbornness to accommodate change once FDI increases."

”Mojtahedi issues a stark warning against an over-reliance on hiring returning talent from Iran’ s diaspora. “One must not presume that Iran’ s returning talent will be able to assimilate and re-adjust quickly, despite speaking Farsi.Of course, such returnees will be welcomed back by Iran’ s endemic population, but they will be viewed with suspicion by some in a country where trust, network and ‘ face-time’ are often decisive factors in successful business.”

Another commentator, currently acting as a Senior Commercial Adviser on behalf of a foreign government with interests in Iran, highlighted the country’ s likely emergence as a low-cost manufacturing hub for MENA. “Iran is rich in raw materials, people and energy. There is a mature but technologically underdeveloped local manufacturing base that forms a solid foundation for growth. Yet despite favourable unionisation conditions and relaxed requirements towards joint ownership and partnerships, today Iran ranks 118 out of 190 in the World Bank Group’ s ‘ Ease of Doing Business’ rankings. The lifting of sanctions, recent elections and political changes will indeed encourage a more liberal approach to economic reform and business regulations.

“Human resource considerations are pivotal to success in Iran. It may well be difficult to find the ideal managers to champion these new ventures or to form these partnerships. English is not spoken in Iranian executive leadership teams, and relying on an interpreter is fraught with problems. There is no clear, mature and sustainable talent pool for C and C-1 level executives in Iran.

”Our third commentator, a board member for a leading MNC with operations in Iran, declares: “At face value, Iran has a rich talent pool. There is a huge, well-educated and accessible younger working population who are eager to learn. However, the absence of any significant level of FDI in recent years has left the bulk of organisations ignorant of what best practice across all business functions looks like. The challenge facing employers and their staff alike in achieving a transformation of work practices and culture is huge.

”It is, then, vital to ensure deep due diligence across all external factors/stakeholders relating to business planning for Iran. Seek professional advice to help you know your customer, potential partner, key vendors and other influential external stakeholders.

The newly-appointed leaders of Iran’ s emerging commercial entities will need to immediately exude a tangible sense of credibility, gravitas and a cultural affinity to both external and internal stakeholders. Such leaders will need experience of driving success in emerging markets, managing business process optimisation and transformation in a multicultural, challenging environment, whilst ensuring absolute integrity at every level of the business. Whether such candidates are identified internally for secondment to Iran, externally from Iran’ s existing internal talent pool, or from within the more than five million members of the Iranian diaspora, the need for sound human capital due diligence is essential.